In a global economy beset with slow and even no growth, China stands out as a shining exception. As it transforms itself from a rural economy into an industrial powerhouse, China’s gross domestic product is growing 7% to 8% annually.You see the evidence all around you. Virtually everything is made in China these days -- from apparel to computers to cell phones.

"Almost anything that can be made by human hands can be made cheaper and more efficiently in China than anywhere else," says Mark Headley, co-manager of Matthews Pacific Tiger fund (MAPTX). The combination of cheap labor with a well-developed infrastructure -- telephones, highways, ports and the like -- is catapulting China ahead.

Indeed, China just passed Japan as the leading exporter to the U.S. outside North America.

Relying on the specialists

The difficulty for U.S. investors has been finding a way to profit from that growth without getting fleeced.

Capitalism is still in its infancy in most of China, and many corporate and government chieftains view foreigners as a source of capital -- not as investment partners.

But Hong Kong’s stock market is well developed. What’s more, many countries in Southeast Asia supply China with consumer goods and services, as well as high-end electronic components.

“A computer made in Asia typically involves parts from three or four different countries, with the finished computer assembled in China,” Headley says.

Headley says that the 1997-98 Asian contagion, which caused currencies and stock markets to collapse throughout the region, wiped out poorly run, over-indebted businesses and prompted regulatory reform.

He says that because he and co-manager Paul Matthews are longtime Asia specialists, they know their companies better than most international managers.

“Most international managers specialize in Europe,” he says. “They throw darts from London and have no idea where they will land.”

Matthews Pacific Tiger’s results back Headley up. The fund is in the top 10% of Asia funds over the past five years. Moreover, 1995, its first full year, was the only year it failed to beat its benchmark, a Morgan Stanley Asia Index that excludes Japan (the fund shuns Japanese investments).

Pacific Tiger can be volatile. You’ll get a smoother ride with Matthews Asian Growth & Income (MACSX), which is in the top 1% of Asian funds. But if Asia can avoid falling apart again, this fund, which invests in convertibles and bonds as well as stocks, isn’t likely to produce results as good as Pacific Tiger.

Investing direct

For stock investors, Headley recommends several American depositary receipts (ADRs):

China Mobile (CHL) is China’s biggest cell phone company. It has 120 million subscribers and is adding 10% more annually. The consensus of analysts projects the company will earn $1.03 per ADR next year, putting its price-earnings ratio at 11.

Huaneng Power (HNP) is the only nationally diversified independent power producer in China. It has been buying up power plants in a country where the demand for electricity is growing 10% annually. It is expected to earn about $3 per ADR next year, making its P/E 10.

KT Corp. (KTC) has the government monopoly on fixed-wire telephones in Korea, and also holds a majority interest in the country’s second largest cell phone firm. It’s expected to earn $2.58 next year, making its P/E just 8.

SK Telecom (SKM) is the largest cell phone company in South Korea. It’s expected to earn $1.68 next year, giving it a P/E of 13.